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Friday, April 27, 2012

This chart by Philip Klein has some interesting information of GDP growth for the March of presidential reelection years. But the biggest takeaway is perhaps that, as of March 2012, Obama is heading into a general election with the worst unemployment rate of any incumbent since World War II. Only one president won reelection with an unemployment rate above 6% in the March of an election year: Ronald Reagan in 1984 (when unemployment was 7.8%). Currently, unemployment is (at least) 8.2%.

Wednesday, April 25, 2012

Kelly Evans reflects on the student loan situation, noting the poor job prospects of many Americans:

And this all comes as globalization and technological change have
upended once-reliable career paths, wiped out many mid-level
professional jobs and leave low-paying fields in health, food and
beverage services, and retail as among the fastest growing job markets
over the next decade.

Yet part of this might be an economics problem, not just a loan financing one. Policy makers need to think about how new mid-level jobs can be encouraged.

The Office for National Statistics said
Britain's gross domestic product fell 0.2 percent in the first quarter
of 2012 after contracting by 0.3 percent at the end of 2011, confounding
forecasts for 0.1 percent growth.

Most
economists had expected Britain's $2.4 trillion economy to eke out
modest growth in the early 2012, but these forecasts were upset by the
biggest fall in construction output in three years coupled with anaemic
service sector growth and a fall in industrial output.

Wednesday's
figures will be a deep blow for Britain's Conservative / Liberal
Democrat coalition, which has slid in opinion polls since a poorly
received annual budget statement in March and risks embarrassment at
local elections on May 3.

The government is also under pressure over revelations about its close relationship with media tycoon Rupert Murdoch.

The
government desperately needs growth to achieve its overriding goal of
eliminating Britain's large budget deficit over the next five years.

Tuesday, April 24, 2012

But increasingly in recent months, the administration has been seeking
ways to act without Congress. Branding its unilateral efforts “We Can’t Wait,”
a slogan that aides said Mr. Obama coined at that strategy meeting, the
White House has rolled out dozens of new policies — on creating jobs
for veterans, preventing drug shortages, raising fuel economy standards,
curbing domestic violence and more.

Each time, Mr. Obama has emphasized the fact that he is bypassing
lawmakers. When he announced a cut in refinancing fees for federally
insured mortgages last month, for example, he said: “If Congress refuses
to act, I’ve said that I’ll continue to do everything in my power to
act without them.”

Aides say many more such moves are coming. Not just a short-term shift
in governing style and a re-election strategy, Mr. Obama’s increasingly
assertive use of executive action could foreshadow pitched battles over
the separation of powers in his second term, should he win and
Republicans consolidate their power in Congress.

As this story demonstrates, those who would expand centralized power often cloak their efforts in the rhetoric of crisis.

Monday, April 23, 2012

Mitt Romney's announcement that he supports an extension of low student loan interest rates may be good politics: it suggests that he is open to the concerns of the young. (And, despite the outrage on some comment threads, it's not exactly clear how this is a tremendous betrayal of conservative values. If conservatives really are concerned about dealing with student loans in a free-market way, they have an outlet available to them: allow for student loans to be discharged in bankruptcy. It's not clear to me at least why higher interest rates on student loans are now the sine qua non of TrueConservativism.)

The terrible job market for the young could eventually be Obama's undoing with that demographic. Obama's approval rating has hovered in the low 50s with this group throughout much of the year (though it has ticked upwards a little bit over the past few weeks). America's youth seem to be on the fence about the president. Supposed coolness and reputedly "soaring" speeches don't pay the bills of America's young people. Reagan was able to win a generation in the early 1980s with his message of economic opportunity for all in the face of Jimmy Carter's malaise.

A lot of recent Republican talking points have emphasized guaranteeing government benefits for the currently middle-aged and elderly (the Ryan budget, for example, would guarantee gold-plated Medicare to everyone over the age of 55). Now might be a good time to pivot to the message of growth for all Americans, especially for the young. Providing economic opportunity for the young is a means of providing for income security for older Americans.

Sunday, April 22, 2012

Charles Krauthammer has a very sharp column on the death of the space shuttle. Krauthammer is particularly right to note that public policy is in part about keeping one's eyes on long-term tendencies:

Who cares, you say? What is national greatness, scientific prestige
or inspiring the young — legacies of NASA — when we are in economic
distress? Okay. But if we’re talking jobs and growth, science and
technology, R&D and innovation — what President Obama insists are
the keys to “an economy built to last” — why on earth cancel an
incomparably sophisticated, uniquely American technological enterprise?
We
lament the decline of American manufacturing, yet we stop production of
the most complex machine ever made by man — and cancel the successor
meant to return us to orbit. The result? Abolition of thousands of the
most highly advanced aerospace jobs anywhere — its workforce abruptly
unemployed and drifting away from space flight, never to be
reconstituted.
Well, you say, we can’t afford all that in a time of massive deficits.
There
are always excuses for putting off strenuous national endeavors:
deficits, joblessness, poverty, whatever. But they shall always be with
us. We’ve had exactly five balanced budgets since Alan Shepard rode
Freedom 7 in 1961. If we had put off space exploration until these
earthbound social and economic conundrums were solved, our rocketry
would be about where North Korea’s is today.
Moreover, today’s
deficits are not inevitable, nor even structural. They are partly the
result of the 2008 financial panic and recession. Those are over now.
The rest is the result of a massive three-year expansion of federal
spending.

The decline of the space shuttle shows how much President Obama (and much of the rest of the Washington elite) has focused on weakly maintaining the present, even as the present economic model (anti-manufacturing, high-borrowing, and so forth) becomes more and more unsustainable. Washington has decided it would rather spend billions on unemployment benefits rather than investing in the future sources of new employment, innovation, and discovery.

This is a theme Romney might emphasize: we can no longer afford not to invest in the future.

Friday, April 20, 2012

America's growing Hispanic
population increasingly votes Democratic for economic reasons. The
Hispanic population is poorer than the American norm—median household
income of about $38,000—and favors more activist government. The hope
that Republicans could win votes among them by championing more open
immigration was always delusive. The thinking behind that hope was based
on stereotypes: Mexico is a heavily Catholic country, therefore Mexican
immigrants should vote for the pro-life GOP on cultural grounds—even
though actual Mexican-American voters have amply demonstrated a
preference for the Democratic party on substantial economic grounds.

This mismatch between GOP assumptions and Hispanic voting preferences is widening in the age of the Tea Party.

How
does the Ryan plan sound from the point of view of a Hispanic voter:
surely it sounds like a plan to tax younger Hispanics to pay for the
Medicare benefits of white retirees and near-retirees—and then yank away
the full Medicare benefits just when Hispanics begin to qualify for it
in large numbers?

Marco Rubio may imagine that he can make this mismatch go away by endorsing some version of the DREAM Act. He's kidding himself.

Meanwhile, DrewM wonders whether Republicans really want to get into a discussion of the DREAM Act now:

We’re going to grant the premiss the Democrats have been running on
that this is something we have to act on (separate from border
security/enforcement)
We’re going to do this to try and win votes of voters who will simply
say, “Um, why should I support your half-assed measure when the other
guys are offering me the whole thing?”
We’d also offer the Democrats a new and exciting line of
attack…”Republicans think you’re good enough to work for them and fight
and die for this country but not to vote”. Some enterprising liberal
will no doubt find a way to equate that with slavery. Fun times!
And while we’re getting no credit or votes from this, we’ll also be
doing the Democrats job for them by driving a wedge between members of
our party.
If Rubio really goes ahead with this it will do significant damage to
the GOP and Mitt Romney (who will have to pick sides between seeming
anti immigrant or the GOP’s enforcement first base. He’ll get no credit
if he goes with the former and will be bashed if he sides with the
latter).
You know who would love to run on who can be more pro-amnesty than anyone? Barack Obama, that’s who.

All Los Angeles Unified high school students
would have to take advanced courses such as algebra, physics and a
foreign language and earn at least a "C" in order to graduate under a
sweeping change in curriculum being considered by the school board.
The proposal outlined Tuesday is part of an effort to make
every LAUSD graduate meet the minimum standards for admission to the UC
and CSU systems.
Besides requiring the advanced courses, students would have to
earn a "C" in those classes to get their diplomas. Currently, LAUSD
considers "D" to be a passing grade.
To help students meet those tough new standards, the district
would shrink the graduation requirement from 230 to 170 units, making it
optional to take any electives, such as health or technology classes.
That would leave students' schedules open to repeat classes or
get tutoring during the school day, officials said, because summer
school is no longer an option after budget cuts.

So, in order to force all students into a single mold, the LAUSD would be willing to sacrifice curriculum variety under this proposal.

This change might cause a major shakeup in the school system however:

LAUSD has been pondering the college prep A-G
curriculum for several years. The Board of Education passed in 2005 a
nonbinding resolution recommending that every student entering ninth
grade be required to pass it, beginning in 2012. Nothing was done until
last year, when Aquino was tasked with coming up with a plan.
In 2005, some teachers urged the board not to approve the
college prep plan, as many LAUSD students were not able to meet basic
academic requirements and there was concern the new curriculum might
lead to more dropouts. LAUSD already has an estimated 50 percent dropout
rate.
The challenge facing the district in implementing A-G and
getting students to pass it with a "C" is demonstrated with an analysis
of the Class of 2011. Had the new standards been in place, roughly 8,000
of the 53,900 students in the class would have met the requirement.

So only about 15% would have been eligible to graduate last year if these reforms had been put in place. In a school system already so troubled, it's not clear why a one-size-fits-all curriculum approach would be desirable.

Wednesday, April 18, 2012

Conservative approaches to education reform may in the next few years encounter a fateful fork in the road. One long tradition of conservative educational theory has stressed the value of vouchers as a way of decentralizing education and providing state subsidies directly to parents (rather than routed through local school systems) for their children's education. A newer movement on the right has embraced standards-based accountability, where students and, increasingly, teachers will be evaluated according to the measures of certain standardized tests and complicated (and unproven) statistical models. At the moment, these twin strategies have been used to reorient radically local public school organizations. Louisiana has become ground zero for these twinned approaches, having recently approved a massive expansion of vouchers (HB976) and new reforms making teacher employment contingent upon student performance on standardized exams and opaque value-added modelling (HB974). However, there is an increasingly obvious tension between these two approaches. The voucher movement emphasizes pluralism; current "accountability" models emphasize uniformity. Eventually, one tendency will have to win out.

Under the old model of education funding, federal and state government provided various subsidies to various school systems based on student populations and certain legal mandates. Under this model, the case for vouchers is relatively straightforward: if the government provides $8000 for a student to go to an unaccountable public school, why not give the parents this amount to send their child to an unaccountable private school? (Yes, there are numerous interesting reasons why this may not be a good idea, but let's leave those to the side for the moment.) If not entirely persuasive, this case is at least understandable. It puts power directly in the hands of the parents and encourages competition between various scholastic enterprises in something resembling an educational marketplace.

The rise of testing-based accountability measures immeasurably complicates this argument for vouchers. Under No Child Left Behind and Race to the Top, public schools have to demonstrate their performance on certain standardized measures in order to receive funding. Race to the Top further centralizes educational affairs by encouraging states to adopt a nationwide core curriculum and by emphasizing a testing-driven component for teacher evaluations. The argument on behalf of such measures is that public dollars demand proof that they will be spent in a valuable way, and standardized testing is, apparently, the best way to establish this value. (Yes, this argument may be flawed in many, many ways, but let us leave that to the side for the moment as well.) If one wants to establish a centralized, federally-run public school system, No Child Left Behind and Race to the Top provide a sturdy foundation for that enterprise.

If, however, one wants to support a pluralist, voucher-driven kind education reform, this movement toward standards-based accountability could prove much more problematic. If the premise of this accountability is that public dollars require proof of effectiveness, what is the reason for demanding that a school run as a public institution (that is, a public school) should be held to any different standard than a school run as a private institution? Both would receive tax dollars from state and potentially local and federal governments: why should they be held to two different standards?

For the moment, many on the right have chosen to ignore this pressing question. Louisiana's latest round of "reforms," for instance, specifies the standards for granting teachers tenure and for removing teachers. However, these standards only apply to public schools; they do not apply to the charter and private schools that could receive voucher money. The state is effectively giving public schools less flexibility than it provides private schools on matters of personnel.

However, the Louisiana voucher bill also opens the door to further bureaucratic burdens on private schools. This bill has a provision that mandates that the state superintendent devise an "accountability system" for students at voucher schools. This aspect of the bill suggests a tendency for the future: to start to hold out to private schools the promise of government money with an increasing number of strings attached. Once you've bought into the idea that standardized testing establishes a school's quality, it becomes harder to resist the idea that public money ought to go only to those private entities that have demonstrated their effectiveness in teaching. Moreover, these standards for accountability will, as both Louisiana and federal reforms demonstrate, tend to come from bureaucrats working in central government offices.

Under a universalized voucher program and homogenous standards system, the federal government, which would be the engine that de facto drives education policy under this "reformist" vision, would have increasing control over private schools. Why? Over a period of years, private schools would become increasingly dependent upon government tax dollars, and he who pays the piper picks the tune. Maybe not now, maybe not a few years from now, but eventually legislators and regulators could start placing further demands upon these newly dependent private schools. After all, if education is truly in a state of crisis, shouldn't government be demanding the best from schools in exchange for the taxpayer's hard-earned dollars?

This would be a dangerous road to go down from a conservative perspective. It could lead to a near-nationalization of most of the nation's schools, private and public. A proliferation of educational models has been one of the strongest parts of American education; the conversation between these models has led to new innovations and intellectual achievements. It would be no great exaggeration to say that the American university system, envied by many across the world, is the product of this conversation between various scholastic models.

Conservatives need to be careful. George W. Bush's No Child Left Behind has done more to nationalize education than any other policy measure in recent memory. By placing impossible demands upon schools (e.g., continual progress toward perfection culminating in 100% proficiency for all students), this policy laid the groundwork for the power-grab of Barack Obama's Race to the Top and federal waivers that allow states to opt-out of No Child Left Behind's requirements if they give away further local control of education to the federal government. Purportedly "conservative" policy led to thoroughly "progressive" results. Some on the right may see a combination of standardized testing and voucher systems as a way of striking at teachers unions, but conservatives may soon find this anti-union weapon turned against themselves and small-government aims. For the past decade or so, numerous "conservatives" have chosen big bureaucracy over smaller, local government when crafting education policy. As the price of this choice becomes clearer, perhaps some on the right will change their minds. At the moment, centralized, testing-driven education "reform" seems on a collision course with educational pluralism.

Joseph Kennedy III, running to replace retiring Democratic Congressman Barney Frank, recently filed his quarterly campaign finance reports with the FEC. Kennedy is off to a fast start, raising over $1.3 million in the first quarter.

Some of the haul comes from traditional Democratic activist groups (Hollywood, labor PACs, and so forth), but no small portion of it comes from Wall Street. Kennedy received individual donations of $2500 each from executives affiliated with the following firms: Citigroup, Millennium Capital, Morgan Stanley, Bank of America (including a former chairman), BlackRock, the Marshall Group, QueensFort Capital, the Capital Group, and Boston Capital. And those are only some of the marquee names in Kennedy's list of Wall Street-related contributors. Frank, former chair of the House Financial Services Committee, also had numerous allies on Wall Street. He has praised Kennedy highly.

Kennedy's leading Republican rival, Sean Bielat, has raised $175,000 in the first quarter. High finance was not so generous with Bielat.

Monday, April 16, 2012

Voucher supporter Chester E. Finn suggests that there could be further bumps in the road for the nationwide push for vouchers: concerns about religious education and organizational autonomy may slow the voucher movement.

Bill Frezza comments on the disproportionate regulation of the Obama era:

We know for a fact that enormous sums of money legally off limits
have disappeared into the maw of disgraced Senator John Corzine's
gambling counterparties, all of whom seem to have taken the oath of
omerta. We know that Corzine personally asked employees at MF Global,
the financial firm he headed until recently, to transfer the funds. We
know that his underlings balked at signing false statements attesting
the transfers to be legal. So how is it that the man ultimately
responsible for this brazen theft and spectacular bankruptcy gets away
with performing a perfunctory Sergeant Schultz "I know nothing" routine
in front of his old Senate buddies, after which he is left free to walk
out the door without handcuffs?

Meanwhile, marine biologist and whale watching ship captain Nancy
Black faces 20 years in prison, not for "harassing" whales (which
believe it or not is a crime), but because she has been charged with
lying to Justice Department prosecutors investing allegations that some
of her crew members whistled at a whale to keep it hanging around their
boats.

Sunday, April 15, 2012

Similarly, sometimes it seems as if Republicans' only move on the
economy is to cut taxes. With the highest corporate tax rate in the
world, there's much to be said for cutting taxes. But, unlike when
Reagan ran for president, it's going to take a lot more than tax cuts to
rescue this country from its $16 trillion debt.

When Reagan took office, the top marginal tax rate in this
country was a staggering 70 percent. Lowering that to 28 percent was an
enormous shot in the arm to the economy.

Cutting the top tax rate today from 35 percent to 30 percent --
or even 20 percent -- cannot possibly have the same dramatic effect.
Republicans, as the only responsible party, are going to have to do
something that's never been tried before in Washington: Cut government
spending.

And restoring the economy could be the fastest way to cut government spending.

Friday, April 13, 2012

Politico lays out what looks to be Obama's current reelection strategy: claiming that Mitt Romney is, like, totally uncool:

He may not drink or cheat, and he lacks the fictional ad-maker’s
charisma, but Democrats, despite the potential perils of such a
strategy, remain determined to paint Romney as a throwback to the “Mad
Men” era — a hopelessly retro figure who, on policy and in his personal
life, is living in the past.
President Barack Obama
has noted the presumptive GOP nominee uses archaic turns of phrase such
as “marvelous” and warned in an email to donors Thursday that his rival
would usher in “a social agenda from the 1950s.”

However, the 1950s witnessed less economic inequality and greater job growth than Obama's term has.

As Jay Cost suggests, this style-driven narrative might not be the most effective:

Clearly, this is not an ideal strategy, for any candidate. Typically,
successful reelection campaigns – e.g. 1936, 1956, 1972, 1984, and 1996 –
have been based on narratives about how the country has turned a
corner, thanks to the incumbent’s greatness. Think “Nixon’s The One!”
“It’s Morning In America” or “Bridge To The 21st Century.”
None of that applies to President Obama, who instead looks to tar Mitt
Romney as the evil stepchild of J.P. Morgan and Barry Goldwater.

Thursday, April 12, 2012

James Pethokoukis is trumpeting a study that purports to show that income inequality has not increased (at least according to Pethokoukis's interpretation). Personally, I have some doubts about what the study cited by Pethokoukis really shows. But let's put those doubts aside for a moment and turn to another issue.

By the standard that shows growing income inequality since 1980 (the standard of economist Emmanuel Saez and others, which looks at income), Obama's administration has been worse for income inequality than Bush's, as Matt Stoller notes:

Yup, under Bush, the 1% captured a disproportionate share of the income
gains from the Bush boom of 2002-2007. They got 65 cents of every
dollar created in that boom, up 20 cents from when Clinton was
President. Under Obama, the 1% got 93 cents of every dollar created in
that boom. That’s not only more than under Bush, up 28 cents. In the
transition from Bush to Obama, inequality got worse, faster, than under
the transition from Clinton to Bush. Obama accelerated the growth of
inequality.

In other words, the Obama “recovery” hasn’t leveled the playing field –
it’s tilted it more. That makes sense, since most of Obama’s measures
have been aimed not at providing jobs for working class people, but at
subsidizing friends, allies, and union bosses. The rich continue to get
richer – and much faster – under Obama, even as he claims the mantle of
class warrior.

Republicans don't need to run from the inequality fight. Obama's big-government approach seems to have only exacerbated inequality, as a wealthy few have the ability and influence to manipulate government to benefit themselves. There's a reason why GE's corporate tax bill is smaller than the sales tax on a Big Mac in New York City.

Some on the left seem to be waking up to the fact that, for all his talking points, Obama's administration might not be the biggest friend of the little guy. The stagnation of the Obama economy has been felt the most by the working (or at least would-be working) and middle classes. Republicans can argue for both economic dynamism and egalitarianism.

Wednesday, April 11, 2012

Zeke Miller at BuzzFeed posts a graphic showing that Romney has the lowest net favorability rating of any eventual nominee since 1996. However, I'm not sure that he is, as Miller's headline suggests, "historically weak."

After all, let's look at history and go all the way back to 1992 (a date that Miller does not include in his graphic). By June of 1992, Bill Clinton's approval rating could have been better, as S.E. Cupp reminds us:

In June 1992, Clinton was third in the polls, behind President George Herbert Walker Bush and Ross Perot,
and his favorability rating was an embarrassing 16%. Even forgetting
that Perot split the conservative vote and probably cost Bush
reelection, it’s hard to believe that Clinton went from such low
favorability to the White House in such a short span of time.

And these early favorability numbers might not be the most persuasive. According to Miller's chart, the candidate with the highest net favorability in the March of an election year was Bob Dole. Another fact from history: there was no President Dole.

Mickey Kaus, spurred on by other media speculation, wonders whether Mitt Romney will pivot on immigration now that the primary race seems to be drawing to a close. Kaus fears/anticipates that Romney will switch from his pro-enforcement position to some kind of support for mass legalization for illegal immigrants.

However, numerous political dangers could accompany a Romney immigration pivot. What heightens the danger of such a switch is that Romney has a limited number of pivots he can make. Because he needs to ward off the narrative that he is a "flip-flopper," Romney must ensure that his pivots are as few as possible and provide as much utility as possible. Switching on immigration enforcement might be an electoral waste of a pivot.

Romney's strong stance on immigration enforcement is one of his strongest ties to the conservative grassroots. His persistent defense of immigration enforcement helped him fend off both Rick Perry and Newt Gingrich. An openness to amnesty is one of the (many) third rails of grassroots conservative politics. Romney has challenged this slice of the electorate a lot already; he can't afford to pick needless fights with it. It would be infuriating to the grassroots to see Romney stay consistent on Romneycare while turning his back on immigration enforcement. Many (though not all) of the conservatives who promised during the primary to stay home if Romney were the nominee are likely to hold their noses and vote for him in November, but, if he pushes too many of them too far, he might lose more than a few disaffected conservatives.

Moreover, it just isn't clear that support for some kind of amnesty will rally "Hispanics" to a Republican candidate. Few Republicans fought as loudly and proudly for legalizations of all types as did John McCain throughout 2008. But, when election day came, he lost "Hispanics" by 36 points to Barack Obama (31-67). George HW Bush was the Vice-President of a man who pushed through an unambiguous amnesty for illegal immigrants (Ronald Reagan). Bush lost "Hispanics" by forty points in 1988 (30-70). Or consider the converse of this: the most pro-enforcement GOP candidate, Romney also convincingly won "Latinos" in both the Arizona and Florida primary races. His support for enforcement did not sink him.

The fact that support for legalizations might not be politically beneficial does not necessarily mean that it is bad policy, but the Romney camp should not be mistaken in thinking that pivoting to amnesty will be a successful pander to "Hispanic" voters. Poll after poll after poll shows that "Hispanics," like many other Americans, are interested in much more than just immigration issues: the economy, education, and other issues often rank higher for American "Hispanics." Furthermore, many "Hispanics" support immigration enforcement.

Instead of slicing and dicing America into ethnic groups with distinct panders, Romney should instead put forward a campaign theme that speaks to the needs of all Americans---"white," "black," and "Hispanic." Support for immigration enforcement seems a position that appeals to the middle. Contrary to Beltway spin, opposing a perpetual influx of exploited serfs is a centrist, popular position. As median wages continue to stagnate if not decline, Americans are anxious about threats to the middle class. Many Americans see illegal immigration as a wedge used by the wealthy against the middle and working classes, undercutting the wages of the native-born and legal immigrants. I've suggested before that Romney could use his support of immigration enforcement as part of a broader message for improving the prospects of the American middle class in the twenty-first century.

Gingrich and Santorum made inroads by charging that Romney represented elite monied interests, and Barack Obama seems likely to try to use class warfare and the politics of resentment as a smokescreen to cover up the economic disappointments of his administration. (Never mind that Obama's own term as president has seen economic inequality grow even more.) Supporting immigration enforcement could be one way of showing that Romney stands with the middle and could provide a contrast between the GOP challenger and the president.

Defending immigration enforcement need not be a demonization of the other. Romney could focus his criticisms on those businesses and individuals that knowingly hire illegal labor: focus, that is, on the jobs. Government benefits going to illegal immigrants could also be a fruitful topic.

Romney can put together a message that both supports the middle class and provides a vision for further economic growth; the decline of the middle class is one of the biggest problems if not the biggest problem the post-2000 economy faces. Immigration enforcement could play a role in this message of the middle. Romney might regret trading that electoral tool for a fruitless pander.

Tuesday, April 10, 2012

Tyler Cowen's recent American Interest essay argues that surging exports will fuel new American economic growth. Cowen doesn't, however, really address the fact that the US trade deficit is also growing. Exports may have risen to record highs, but so have imports. It's a very interesting piece, whether you agree with it all or not.

At least Cowen, one of the leading figures in the right-libertarian establishment, implicitly admits that we don't really have free trade (emphasis added):

As a major exporter (among other strengths), the
United States can be expected to maintain and even extend its
investments in its Navy and Air Force. The current defense budget
austerity won’t last very long, meaning, among other things, that it
won’t be a fun time to be a pirate. Parts of the Pacific may,
politically speaking, become a “Chinese lake”, but the two economically
dominant countries will favor both open seas for trading and some
approximation of global free trade, albeit with remaining protections in
China itself.

EPIC-MRA has released a new poll showing Obama with a slim 4-point lead over Romney in Michigan (47-43). This poll may overestimate Republican strength; it is weighted 38/37/21 Dem/Rep/Ind (other polls have showed a similar breakdown, but some have also found a bigger Democratic advantage). Still, it's worth noting that Romney has gained strength among independents compared to an earlier EPIC-MRA poll. He now leads Obama among independents 41-39 (after being 12 points behind him), so this poll definitely has positive news for the Romney campaign. Obama won Michigan in 2008 by about 16 points; a close race here could be suggestive of a broader weakness.

Furthermore, this poll suggests that Democratic Senator Debbie Stabenow may be vulnerable. Just 38% of Michigan voters think that she's doing a positive job. That's not a good number for a multi-term incumbent. Republican challenger Pete Hoekstra has a positive favorability rating, but he's unknown to a lot of the electorate. As he makes himself known to more Michigan voters, we might see Michigan become a battleground on the Presidential and Senatorial levels.

Monday, April 9, 2012

Robert Samuelson
has some fair points in this column about why he thinks that Social
Security should be considered "welfare," but he falls into an all-too-common trap:
conflating Social Security benefits with Medicare benefits. Here's the
crux of Samuelson's piece:

With favorable demographics, contradictions were bearable. Early Social
Security beneficiaries received huge windfalls. A one-earner couple with
average wages retiring at 65 in 1960 received lifetime benefits equal
to nearly 14 times their payroll taxes,
even if those taxes had been saved and invested (which they weren’t),
calculate Eugene Steuerle and Stephanie Rennane of the Urban Institute...

Although new recipients have paid payroll taxes higher and longer than
their predecessors, their benefits still exceed taxes paid even assuming
(again, fictitiously) that they had been invested. A two-earner couple
with average wages retiring in 2010 would receive lifetime Social
Security and Medicare benefits worth $906,000 compared with taxes of
$704,000, estimate Steuerle and Rennane.

Except Steuerle and Rennane's analysis
shows that this average couple would receive fewer dollars back in
Social Security than it paid in Social Security taxes---$555,000 in
benefits for $588,000 in taxes. Is getting less than what you paid for
in taxes now welfare? There is a slight aspect of income redistribution
for Social Security: low-income workers receive somewhat more in
benefits than they paid in taxes, and upper-income earners receive
somewhat less. However, this redistribution does not change the fact
that the average Social Security beneficiary pays more into the system
that he or she receives out of it.

What really drives this disparity between retirement taxes and
benefits is Medicare. Reforming the trajectory of Medicare may be an
important topic---however, it is not necessarily connected to
Social Security. Contrary to the main argument of his column, the
statistics cited by Samuelson suggest the sustainability of Social
Security as a retirement program. Indeed, the surplus of an individual's Social Security taxes (relative to benefits received) helps defray the cost of Medicare spending.

Meanwhile, six Democrats crossed over to vote in favor of this bill weakening local control.

A big takeaway from this: education "reform" in Louisiana has become bipartisan. For both the House and Senate votes on these issues, Democrats played a crucial role. Without their votes, these bills would have failed.

Another big takeaway: we'll see how serious the teachers unions are about defending the interests of Louisiana teachers and how serious these unions are about merely being footsoldiers for Louisiana Democrats. Will they spend much time talking about the balance-tipping Democrats in the legislature? They would seem to have the most leverage over these members, so it will be interesting to see whether the unions will use it.

A final vote seems to await in the Louisiana House. If Democrats stay united there, a coalition of conventional conservatives and Democrats might stop the bill. But the "reform" train has a lot of momentum at this point.

UPDATE 4/5: Earlier today, the House passed both the voucher and anti-tenure/anti-local control bills, sending them to Governor Bobby Jindal for his signature. Interestingly, three Republicans and one independent swung to vote against the amended HB974 after supporting it originally, making the vote closer this time around: numerous Republicans opposed these measures weakening local control of public schools. However, the faction of pro-"reform" Democrats stood strong and gave the bill the majority it needed. A unified Democratic opposition, combined with skeptical conservatives, would have caused this bill to fail.

Here's a riddle that many Americans are familiar with: how
are a house mortgage, credit card debt, and a car loan different from student
loans? For the latter, the federal government has gone the extra mile to
protect lenders by making them non-dischargeable in bankruptcy. This means
that student loans, unlike almost every other kind of loan available, cannot be
escaped through bankruptcy. With student loan debt approaching nearly $1 trillion nationally, a growing portion of Americans are facing a growing
burden of inescapable indebtedness. This burden of debt is especially
borne by the young, the group which has perhaps been hit the hardest by the
economic slowdown.

It wasn't always this way. According to the non-partisan
Congressional Research Service, until 1976, all student loans could be
discharged in bankruptcy. Up until 1998, student loans could be
discharged after a waiting period (of initially five and later seven years
after repayment was scheduled to begin). In 1998, Congress made federal
student loans nondischargeable in bankruptcy, and, in 2005, it similarly
extended nodischargeability to private student loans. (Extreme hardship
can still result in the discharge of some student loans, but this condition is
rather difficult to establish.) Since 2000, student loan debt has
exploded, and private student loans have grown at an accelerated rate. Somehow,
people still went to college and were able to get loans prior to 2005.
Clearly, certain lenders found it in their own interest to provide loans even
when there was a chance of bankruptcy.

Some have tried to frame the issue of nondischargeability of student loans in
terms of guaranteeing access to education. According to these arguments,
the fact that such loans are not dischargeable allows students greater access
to higher education: since lenders know that students cannot escape their debt,
they will be encouraged to lend money out more easily (increasing the amount of
money lent out and lowering perhaps the interest rates on these loans in some
cases).

Such arguments would seem to ignore some of the hard lessons of the past
decade, when gratuitous credit for both private individuals and corporations
helped lead to an unsustainable bubble in real estate and securities.
Moreover, at least people can declare bankruptcy and escape their mortgages
(and certain favored companies can get government subsidies so that they can
avoid bankruptcy). This is not the case for student loans.
Furthermore, the argument that educational access is improved by creating an
eternal tie between borrower and debt could be applied to other areas as
well. By such reasoning, perhaps the nondischargeability of car loans
would help Americans get better cars or the nondischargeability of credit card
debts could improve the material comforts of Americans by giving them access to
more credit.

There's another approach to bankruptcy, however. Borrowers' potential for
bankruptcy represents a kind of risk for lenders---a risk that encourages
lenders to be efficient about whom they lend money to. And this efficiency
may lead to results in the interests of both borrowers and lenders. Due to
this risk, the lender needs to determine how likely the borrower will be to pay
him back, and the lender's evaluation of this risk can lead to him not lending
too much money to the borrower, thereby preventing the borrower from getting
over his head in debt.

Consider the case of student loans. If these loans were dischargeable in
bankruptcy, lenders (especially private ones) would have to be more prudent
about how much money they lend out to particular individuals. Currently,
lenders have relatively little compunction about lending out $75,000 to a
student as they know that this student's odds of escaping this debt are
relatively small: it might not be paid back on time, but the lender will
maintain a perpetual claim on the borrower. If there were a greater risk
of bankruptcy, however, lenders might be more targeted in the amounts they
lend.

Ironically, this targeting might make education more---not
less---affordable. There is a limit to what students and their families
can currently pay, and, by limiting the ability of some to borrow against their
future, regulators might suggest to colleges and universities that the spigot
of ever-more money might be turned off. This economic pressure might
encourage universities to be more efficient with their own spending, thereby
slowing the rate of tuition growth. Increased lending standards might
encourage students to be more prudent with their own money. Higher
standards might raise hard questions. A student might ask herself whether
she should go to a low-ranked private university for four years or instead
spend her first two years at a much more affordable community college before
transferring to another university. The end result for the student's
employment prospects might be the same, but the debt accumulated along the way might be
very different under those two scenarios.

Moreover,
there is a matter of fundamental principle here. Bankruptcy has
a proud tradition in free market economies. The ability to start anew
is
both good for the human spirit and economically beneficial: this ability
encourages taking risks and gives a sense of hope in the face of
adversity.
It's true that a college degree cannot be repossessed like a car with
delinquent payments can be, but there has been little evidence that,
prior to
2005, there was massive abuse on the part of student loan borrowers.
Conservative politics is not just about the crude application of
abstract principles; it also involves attention to local realities. Yet
it seems that there was considerable access to credit for student loans
prior to their being made non-dischargeable in bankruptcy.

Republicans might have a particular interest in restoring market norms to
student loans: by normalizing student loans, Republicans could at once stand
for free market principles and demonstrate their empathy for younger
voters. If conservatives are serious about spreading free market ideas
(rather than merely using the rhetoric of the market to hammer the opponents of the
moment), a right-led movement to make student loans dischargeable in bankruptcy
could be one more point of evidence for America's youth that free market ideas
can work for a wide variety of people.

News stories abound with examples of graduates who have borrowed colossal
amounts of money and who have little potential of paying it back, at least in
the short- and medium-term. These students are shackled to this
debt. It's true that these graduates chose to borrow this money, but it
is also true that the federal government has chosen to give protections to
lending companies for a certain kind of loan. It is not clear whether
these special protections for certain lenders are in the best interests of the
nation and its citizens, nor is it clear why the loans taken on by some of America's
youngest should be the hardest to discharge. Making student loans
dischargeable in bankruptcy is not loan forgiveness: in filing for bankruptcy,
an individual would pay a considerable price for the dissolution of this
debt. But the ability to pay this price is one we offer to borrowers of
countless other loans.

The mechanics of how to put in
place such dischargeability are
complicated. Would old student loans be made retroactively
dischargeable
in bankruptcy? Would there be a waiting period before someone could
discharge his or her loans? Would both federal and private loans be
made dischargeable? But these complications should not deter
conservatives from taking seriously the free market case for student
loan
dischargeability.

In 2008, Congress decided it was in the national interest to rescue
multinational banks from the prospect of bankruptcy, passing TARP. If
corporate bailouts are good enough for billionaires, perhaps opening up the
door to student loan bankruptcy (far from a bailout) might be permitted average
Americans.

Tuesday, April 3, 2012

Mitt Romney's victory speech tonight after his wins in Washington, DC, Maryland, and Wisconsin hits upon a major theme that may be helpful in the general election: the economic stagnation under Obama may be the biggest ally that big government has. It is this poor economy that drives our current deficits (certain federal entitlements may contribute, but the real "entitlements crisis" has not quite hit yet). Under the booming economy of the 1990s, government spending shrank as a
percentage of GDP and the deficit shrank as well. That economic growth
helped set the political stage for various conservative-minded reforms.
(Though economic growth does not always lead to small-government
thinking...)

President Obama seems to have decided to make the 2012 election about distributing the pain of the poor economy. There's some merit to having this discussion, but there's also another very important discussion: how to minimize economic pain by restoring the economy. Though this hasn't happened for much of the past decade, it is possible to improve everybody's lot by expanding the economy as a whole. The diminished expectations of the past few years do not have to be the future of America.

If Republicans can make the general election not about sharing the pain but about establishing a brighter future and restoring America's traditional economic strength, they may be able to deflect some of Obama's demagoguery over the rich (after all, the president's own administration has no small number of Wall Street insiders). More importantly, they may be able to turn the nation's eyes to an important notion: moving past recrimination to a sober-minded hope. Tossing about blame will not cure the nation of what ails it; searching for solutions may.

In its 2011 Annual Report, the Federal Reserve Bank of Dallas puts forward a basically conservative case for ending the era of Too Big to Fail and suggests that Dodd-Frank may empower, not weaken, large banking institutions.

The author of the lead essay for this report, Harvey Rosenblum, offers an intriguing narrative for the near-collapse of 2008. Rosenblum notes that the top five banks went from having 17% of the total banking industry assets in 1970 to having over 52% of these assets in 2010. When a few players controlling a large portion of the economy fall into similar trends (such as the subprime bubble), disastrous outcomes can occur, Rosenblum warns. Rosenblum lambastes the "quasi-nationalization" of Too Big to Fail banks, which he calls "antithetical to a capitalist system."

He lays out three ways that Too Big to Fail perverts capitalism:

Capitalism requires the freedom to succeed and the freedom to fail.
Capitalism requires government to enforce the rule of law (thereby providing a level playing field).
Capitalism requires businesses and individuals to be held accountable for the consequences of their actions.

Federal policy approaches to Too Big to Fail institutions often run afoul of these three principles.

However, this report also suggests that President Obama's signature financial reform package, Dodd-Frank, may not successfully deal with these challenges. What Dallas Fed President Richard W. Fisher terms Dodd-Frank's "complexity and opaqueness" may add further uncertainty to the banking sector, an uncertainty that benefits those banks with the biggest lobbying power and biggest teams for reviewing regulatory structures.

David Frum wonders whether the Supreme Court's striking down of Obamacare's mandates might lead to a bigger---not a smaller---government role in health-care:

We are headed, it would seem, to a post-mandate future that looks something like this:

Medicare will provide fairly generous government health coverage to about one-quarter of the population.

Medicaid will provide much less generous government coverage to one-quarter of the population.

The population outside Medicaid and Medicare will subdivide into two main groups:

The affluent and those
whose labor is greatly valuable to their employers will be covered by an
ever-more-expensive and ever-shrinking private-insurance market.

The people who can't pay
themselves and whose employers won't pay for them will drop out of the
private market, and either look for ways to qualify for Medicaid or wait
and pray until they qualify for Medicare.

Political pressures will
induce politicians to open Medicaid to more and more uninsured people.
Fiscal pressures will force politicians to make Medicare less generous
and more Medicaid-like.